Please see below an article received within the hour from Brooks Macdonald which provides a brief recap of the last week and also what could impact on markets this week:
As you can see from the above, politics could have a big impact on markets this week, especially with President Elect Joe Biden’s Inauguration on Wednesday. Also, they will be keeping an eye on this week’s European Central Bank (ECB) meeting.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Please see this weeks Weekly Market Performance Update from Invesco which was published today:
The overall tone in forward-looking economic data remains broadly supportive, albeit with occasional disappointments, such as the EZ’s weaker than expected Composite PMI data. Beyond the (inevitable) strong post-lockdown bounce, however, the outlook remains less certain, reflected in continuing dovish comments from Central Banks and further fiscal support. Positive news on the vaccine front continues to come out, but widespread availability of a proven vaccine is likely to be a mid-2021 story rather than anytime sooner. Meanwhile on the virus front the situation remains mixed, with still high levels of new cases globally and the emergence of new clusters of inflections. But these generally have not been met by new aggressive lockdowns as authorities have so far reacted with only very localized and limited measures. With the Democratic Convention over and the Republican equivalent this week, the US Presidential and Congressional elections will increasingly become a major focus for investors as we move into the autumn. Another potential stumbling block for those looking for reasons to be more cautious on the outlook, even if history has shown that such concerns are often misplaced.
Global equities edged higher last week, with the MSCI ACWI in sight of its all-time high set in February. Gains were concentrated in the US, as all other major DMs saw modest declines. Small caps also fell. Value’s relative rally came to an abrupt halt, as Financials and Energy were weak and IT-related stocks boosted Growth. This weighed on UK stocks too.
Fixed income markets eked out modest gains across the board but are struggling to make sustained upward progress with yields at current levels and spreads in credit markets around their post-bear market lows. Government bonds were slightly ahead of credit, with IG ahead of HY.
The US$ recovered the previous week’s losses but remains close to its YTD lows against most major currencies. Commodities had a mixed week. Oil and Gold saw small declines, but copper appreciated.
• After a precipitous decline of nearly 34% in just over a month in February and March, the S&P 500 has staged a spectacular rally off its lows, rising just under 52% since then and making a new all-time high last Tuesday. It is now up 5.1% YTD. • The recovery has surpassed anything seen in other major DM equity markets. Japan (Topix), Europe (MSCI Europe ex UK) and the UK (FTSE All Share) are still respectively -8%, -13% and -21% below their YTD highs. EM equities have fared somewhat better and are now just -1% below theirs. • The US’s rally has not, however, been exceptional compared to previous bear market recoveries. Post the GFC crisis the equivalent rise was 49.4%, so broadly the same. The difference then, of course, was that this was after a multi-year bear market, which saw the market fall materially further than this time around (-56.8%). • And a rising tide has not lifted all boats, at least not equally. The equally-weighted S&P 500 remains 7.8% below its all-time high, highlighting that the rally has been mega-cap led. Apple (+71%), the US’s first $2trn company, Microsoft (+36%) and Amazon (+77%), the three largest companies in the index, have all seen outstanding performance YTD. But there are still around 150 companies that are down more than 20%, while more than half the market has not made any gains this year. • What has driven the rally? It’s been all about a re-rating. The 12m Trailing PE has risen from 23.4x to 29x (based on Datastream data), with earnings down -15%. At 22.3x the 12m Forward PE has only been surpassed during the TMT bubble. It’s been a spectacular rally, but one that has left the market not without its risks against the backdrop of an uncertain economic outlook and expectations of a strong earnings recovery.
Key economic data in the week ahead:
• A light week ahead on the data front. • While not data, the key focus of the week in the US will be the annual (virtual this time) Jackson Hole Symposium. This year’s symposium is entitled “Navigating the Decade Ahead: Implications for Monetary Policy”. On Thursday attention will be on Federal Reserve Chairman, Jerome Powell, and his expected comments on the Fed’s ongoing policy framework review, while on Friday Governor of the Bank of England, Andrew Bailey, will also be speaking. Outside this, Tuesday sees the Conference Board Consumer Confidence reading for August, which is expected to show a slight improvement compared to July but remaining depressed relative to pre-virus levels. Initial Jobless Claims out Thursday are expected at 925k from last week’s above expectations reading of 1.1m. The week ends with the Fed’s preferred inflation measure, Core PCE Inflation, on Friday, which is expected to show a sharp rise (0.5%mom from 0.2%mom). This outsized gain is unlikely to have a material impact on the Fed’s medium-term inflation outlook given that the drivers of this outperformance largely reflect payback from virus-related declines previously. • In the UK the Lloyds Business Barometer on Friday is expected to remain relatively weak compared to the robust PMI readings that we saw last week. Nationwide House Price Index on the same day is expected to see year-on-year growth increasing to 2%, up from 1.5% in July. • No data of note from China, the EZ or Japan.
Please keep checking back for regular updates on the markets from a range of investment managers.
Please see article below from Unum’s bWell – wellbeing newsletter received 12/08/2020
Protecting mental health in the post-Covid 19 workplace
Publish Date: 21/07/2020
The events of the past few months have affected everyone. Whether employees have been working from home, furloughed or key workers supporting others and keeping the country going, everyone has faced their own challenges. But as we come to terms with a new way of life, the impact on our mental health is still unclear. So how can employers help prevent mental ill-health in the post-Covid workplace?
If businesses believe the threat’s been blown out of proportion, it’s not a view shared by the UK’s mental health organisations. In June, 62 agencies, including the Mental Health Foundation and Young Minds, wrote to Matt Hancock, the Secretary of State for Health and Social Care. Believing the effects of the unprecedented crisis are likely to be widespread and long-lasting, they asked him to address the “urgent need” to support our mental health and wellbeing.
As we emerge from lockdown, the mental health pressures on employees will change. After dealing with the challenge of social distancing and being separated from colleagues, the thought of returning to the office, getting back on public transport, or coming off furlough could be overwhelming. They are likely to experience a whole range of emotions from excitement and optimism to anger and anxiety. It’s important that employers recognise this and put plans in place to effectively support the mental health and wellbeing of their employees – both for now and the months to come.
Emerging mental health challenges
An ONS survey at the end of May found more than two-thirds (69%) of UK adults said they were very or somewhat worried about the effect of Covid 191. But whatever an employee’s situation, the challenges of the last months will have had an impact. Dealing with new ways of working or even not working at all, only make up part of the picture. People have also had to cope with their whole lives changing literally overnight. Juggling childcare and work, being separated from loved ones and dealing with financial pressures are just some of the issues they have had to face.
Feeling more isolated
Even before the pandemic, levels of loneliness were already worryingly high. Somewhere between 6% and 18% of the UK population reported often feeling lonely2– something which can have a significant impact on both mental and physical health. Since lockdown, the number of UK adults who say they often or always feel lonely has risen to 25%3.
Men have been particularly impacted. New research has discovered that 79% of men living alone are struggling with feelings of isolation while working from home, while 39% say their mental health has deteriorated. This increased in young men aged 18-30, where 40% said their mental health has been negatively impacted4.
With over 90% of the workforce5 saying they’d like to continue working from home at least some of the time after the restrictions are lifted, employers need to consider what this could mean for their employees’ mental health. While working from home avoids a potentially time-consuming commute and can help improve the work/life balance, it can be easy to feel detached and isolated. Employers should think about what measures they can put in place to prevent this happening.
Increased alcohol consumption
One of the side-effects of lockdown has been an increase in our alcohol intake. According to Action on Addiction, a quarter of adults were drinking more in June than before March6. Regardless whether this was a way of dealing with boredom, or raised levels of anxiety and stress, 15% of those who are drinking more said they were experiencing problems, including having issues with work. Employers need to be aware of these shifts in behaviour and ensure employees know where to turn if they’re struggling with drink.
Fear of meeting people
Since lockdown began, official messaging has emphasised the need to stay at home and avoid contact with people as much as possible. Even as restrictions ease and more places open, we’re told to stay alert against an invisible threat. The consequences of venturing out and leaving the safety of home can feel immense, especially to those either with underlying health issues or who have a vulnerable family member. Many employees may be worried about returning to work and being alongside colleagues again.
Fear of open spaces or being in a situation that feels unsafe – agoraphobia – was already common in the UK pre-lockdown, with an estimated 5 million sufferers, and one that affects approximately twice as many women as men7.
With large numbers of people spending a prolonged period of time at home, this figure is likely to increase. After spending so long in a safe and comfortable environment, many will fear the uncertainty of what their workplace will be like, being surrounded by people again and worry about how they’ll keep themselves safe. It’s vital that employers recognise this understandable anxiety and reassure employees that every precaution is being taken to ensure their safety.
Tips for employers and leaders
Encourage employees to be proactive and look after their own wellbeing, while reminding them that your door’s always open if they need support.
Look for any changes in their behaviour or signs that they might be struggling – early intervention can prevent a problem from becoming a long-term issue.
Consider mental health training to equip line managers with the skills to spot and support an employee who may be having difficulties.
Provide employees with access to trusted and reputable resources to keep them informed, but not overloaded with information.
Clearly communicate the safety measures that have been introduced to make the workplace Covid-19 safe and ensure employees understand the guidelines in place.
Encourage employees to limit how much they talk and share about the virus. The more it dominates the topic of conversation, the more it’s likely to increase fear and anxiety.
Keep talking to employees, be honest about your plans and acknowledge the concern that’s likely to exist.
Good work is good for mental health – provide employees with clear objectives and directions so they know exactly what is expected of them.
Highlight to employees what mental health support is available, such as an Employee Assistance Programme. Clearly communicate how they can access the service and emphasise it will be confidential.
Signpost employees to appropriate expertise provided by external organisations, such as Mind.
Consider how you can offer extra support to employees who may be struggling more, such as those with caring responsibilities or those that live alone.
Recognise employees that are doing a good job and reward their efforts.
Those that previously have had mental health problems may suffer a recurrence of their illness – be proactive and offer them support.
Encourage and facilitate volunteering opportunities for employees. Helping others is an effective way to boost mental health.
Support employees to develop their own skills, providing them with a positive focus and ensuring they look forward, rather than reflect on past difficulties.
Promote personal care plans for employees – urge them to take the time to think about what they can do for themselves to build resilience and boost their mental health.
Offer practical support and advice to employees around their journey to work, such as allowing employees to work flexibly, so they can avoid rush hour.
Encourage the use of video meeting tools like Zoom or Microsoft Teams so people working from home can keep in touch and see colleagues.
Keep monitoring the situation. Everyone is moving into unknown territory, so regularly check-in with employees to ensure the mental health support available covers all their needs.
Providing employees with the right support to protect their mental health and build resilience will be crucial for employers in both the short and long term as restrictions relax. There is a very real danger that a mental health crisis of unprecedented proportions could unfold. Employers acting proactively can prevent this happening.
The Coronavirus Pandemic has had a major impact on all of our lives and has affected everyone in different ways. As noted above the impact on our mental health is still unclear.
As we gradually emerge from lockdown and start to get used to a new normal, the challenges of returning to the office could be overwhelming for many people. It is important for employers to recognise this and have plans in place to support their employees.
The above article provides some helpful tips for employers and protecting their employees mental health in the workplace.
Please continue to check back for out latest updates and blog posts.
Over the years a proportion of our clients use their pension assets to buy a commercial property. Why would they do this?
The general benefits are as follows:
You do not pay any tax on rental income received into a SIPP (Self Invested Personal Pension)
No capital gains tax is paid on disposal of a commercial property from a SIPP
For ‘connected tenants’ (a business owner renting their pension’s commercial property to their own business) rent is generally a tax deductible business expense
SIPPs generally are not subject to inheritance tax
In insolvency the pension assets are normally out of reach of the trustee in bankruptcy
These are fairly standard benefits above; in the current situation a few useful ideas are as follows:
If your limited company owns the commercial property sell it to your pension to inject cash into your business to help with cash flow challenges and/or repay loans
If you own your own commercial property personally you could sell your property to your SIPP and if your business needs capital, make a Director’s Loan into your company (if viable)
By selling the commercial property you own to your SIPP you reduce your personal inheritance tax bill (if applicable)
In the past I have had clients sell their commercial property to their business to enable them to change business bank
When we think of commercial property you would normally think of offices, warehouses, industrial units and shops. In addition, some stranger commercial property could be:
It is important to buy only commercial property with your pension, buying residential property could incur tax charges of up to 70%. If you are not sure we can quickly get opinion on whether a property is commercial or residential for pension purposes.
The process for commercial property into a SIPP is as below:
Validate if it is a potential SIPP investment (commercial property)
Acquisition. This involves good ‘due diligence’
Ongoing management of the property, rent reviews, leases, insurance etc.
Disposal of the property
During the acquisition stage you are likely to need the assistance of a few professionals, your accountant, a solicitor, a surveyor, the SIPP provider and a bank if you need a loan to assist with the purchase. And obviously your IFA!
Due diligence is thorough and includes a report on title, information on the lease (is it suitable?), legal title, insurance, VAT, a copy of the EPC and search results (environmental searches too).
Loans to assist Purchase
If you do not have enough capital in your pension fund to buy the required commercial property you could borrow funds to purchase it. Loans are restricted to 50% of the pension fund value.
For example, if you had £240,000.00 in your pension you could borrow a further £120,000.00. Please note that you must factor in fees etc.
Connected Purchases and Connected Tenants
If you already own the property and you sell it to yourself this is a connected purchase. You will then rent the property to yourself and you would be a connected tenant.
Connected party transactions must be completed on commercial terms. You pay a commercial price for the property and you pay a commercial rent. Normal due diligence is completed.
Rent paid initially can be used to pay any loan off asap if there was a loan used in the purchase. Rent can then be invested in standard investment assets in your SIPP.
Investments can be funded by lump sums and on a regular monthly basis. Building good liquid assets alongside your property assets is good practice.
In general terms fees for commercial property purchase in a SIPP and ongoing fees are more expensive than a standard property purchase. This is because it is more complicated.
You also have the additional costs of your SIPP provider and your IFA in comparison with a standard property purchase. Are the additional fees worth paying? That depends on your circumstances and objectives. Please take advice.
Whilst it is not for everyone buying commercial property with your pension could be useful, particularly now. Some general benefits are that you take control of your working environment, property maintenance (and hygiene now) and if you have the space you could have a tenant too.
You can also join together with your life partner or business partners to buy commercial property with a few SIPPs. You would own the property in proportion to your percentage paid. This can get complex later, particularly at retirement.
Occasionally a SIPP may not be the right pension vehicle for your commercial property purchase. A few of my clients prefer the additional benefits a SSAS provides (Small Self-Administered Scheme). We won’t go into the SSAS benefits in this blog.
Retirement options include retaining the property and using the rent paid as part of your retirement income or selling the property. If you are selling your business and retaining the property in your SIPP, you should also negotiate good long lease terms to the buyer of your business.
Right now, it could be difficult to get a valuation on a property, but business will gradually start returning to normal over the rest of the year – hopefully, a vaccine will speed things up!
Over the years, when speaking to some clients and asking them about their existing pension provision, some have responded ‘my business is my pension’. This was always a fairly speculative position to take because there is no guarantee of being able to sell the business for what you believe it to be worth, or there being a demand to buy the business at the time you would like to retire.
Entrepreneurs Relief was certainly a benefit for this approach as the rules allowed business owners of two years or more to pay less Capital Gains Tax (10% rather than 20%), when they sell their business, up to a lifetime limit of £10million. However, in the Chancellor’s budget on 11th March 2020, he announced that he would be reducing the lifetime limit to £1million immediately with limited transitional arrangements.
How Does Entrepreneurs Relief Work?
To summarise, Entrepreneurs Relief results in a tax rate of 10% on the value of the sale of the business. There’s no limit to how many times you can claim, however, from 6th April 2020, you can only claim up to £1 million of relief during your lifetime.
You have to meet other criteria too for Entrepreneurs Relief to apply.
What does this mean?
Prior to the reduction, business owners could have had a primary focus, which was to grow the value of their business as much as possible prior to selling the business for as much as possible, possibly to retire?
The change in rules effectively means, business owners may now need to reconsider their options and start to take advantage of planning opportunities available to them in order to maximise the value they get out of their business now, prior to the eventual sale. Your options could include the following:
Maintain a ‘lifestyle’ business for the long-term;
Maximising pension funding;
Investing surplus capital; or
Paying a higher level of salary or dividends
Invest proceeds in a tax efficient manner
Using a core business to build a network of ‘family’ satellite businesses
If you are a business owner and you would like to know more about the changes in Entrepreneurs Relief and how this will impact you and your plans, please do not hesitate to contact us.
Reprieve for the Self Employed – With a sting in the tail?
Our Chancellor Rishi Sunak outlined a rescue package that could help the majority of self-employed people over the next few months. These are the basic details:
Self-employment Income Support Scheme
UK Chancellor Rishi Sunak announced yesterday evening help for the self-employed at the daily Government briefing. Here are the details:
What is it?
The Government’s new Coronavirus Self-employment Income Support Scheme is open to those who were trading in the last tax year and are planning to continue to do so. The scheme will be open to those with a trading profit of less than £50,000 in 2018-19, or an average trading profit of less than £50,000 for tax years 2016-17, 2017-18 and 2018-19. More than half of the taxpayer’s income needs to come from self-employment to qualify for the relief.
What help is available?
If a loss in income has been suffered due to the Coronavirus crisis, a taxable grant will be paid to the self-employed individual or partner, worth up to 80% of profits, and capped at £2,500 per month. The grant will be initially available for three months, payable in one lump-sum, and is anticipated to be paid at the beginning of June.
How do I claim the help?
The Chancellor said this will cover 95% of the UK self-employed population.
This is how it works:
HM Revenue and Customs (HMRC) will use existing information to identify those potentially eligible and will invite applications
The application form will require confirmation that eligibility requirements are met
Payment will be made directly into the recipient’s bank account, details of which will need to be confirmed on the application form
There is no need to contact HMRC now. Those potentially eligible will be contacted by HMRC directly
If a tax return for 18/19 has not yet been submitted the Chancellor has stated that there will be a four-week grace period to allow returns to be filed.
Sting in the tail?
Rishi Sunak went on to say (and I precis) that there would be a levelling of the contributions from self-employed people as they would enjoy similar benefits now to the employed during this crisis. In fact, the self-employed are potentially better off as they are encouraged to carry on earning too in addition to claiming from the Self-employment Income Support Scheme.
What might this mean? I think the Chancellor was indicating that national insurance contribution levels could be increased. Now there is a significant difference in what we pay:
Class 2 if your profits are £6,365 or more a year
Class 4 if your profits are £8,632 or more a year
You work out your profits by deducting your expenses from your self-employed income.
How much you pay
Class Rate for tax year 2019 to 2020
Class 2 £3 a week
Class 4 9% on profits between £8,632 and £50,000
2% on profits over £50,000
Employee National Insurance rates (standard)
This shows how much employers deduct from employees’ pay for the 2019 to 2020 tax year.
£118 to £166 a week (£512 to £719 a month)
£166.01 to £962 a week (£719.01 to £4,167 a month)
Over £962 a week (£4,167 a month)
Employer National Insurance rates (standard)
This shows how much employers pay towards employees’ National Insurance for the 2019 to 2020 tax year.
£118 to £166 a week (£512 to £719 a month)
£166.01 to £962 a week (£719.01 to £4,167 a month)
Over £962 a week (£4,167 a month)
Different categories of employees pay different rates of national insurance, but the above employee and employer rates would be applicable to the majority.
You can see that if you combine the rates below £50,000.00 per annum earnings that employed people generate 25.8% contribution for the State in comparison to 9% for the self-employed.
If you are currently trading as self-employed once we (the country) have recovered from COVID 19 you might need to consider how you trade. Your options could be:
Increase your charges to cover the extra cost of national insurance
Trade as a limited company
This is only my opinion but given the debate around self-employed national insurance for the last few years I think changes to self employed national insurance contribution rates are a likely outcome.
A summary of the Autumn Statement 2016 for business owners.
£1bn broadband investment
Small businesses struggling with poor internet connections could soon be able to access a better connection after the chancellor announced, in the Autumn Statement 2016, an investment of more than £1bn into building out the UK’s digital infrastructure.
The Chancellor said the government would be pursuing improvements in speed, security and reliability. Additionally, 100 per cent business rate relief will be provided for the next five years when it comes to new fibre infrastructure.
National Living Wage increase
Employers with staff on the lowest legal wage will now have to pay more after The Chancellor revealed in the Autumn Statement 2016 that the National Living Wage, the replacement to the National Minimum Wage, will go up from £7.20 to £7.50 in April 2017.
Labour are planning for it to be £10 if the party comes back into power.
The tax-free personal allowance has also been increased, and will be £12,500 by the end of the current parliament.
Increase to Export Finance funds
Small businesses looking to engage with export activities will soon have access to better financial assistance. UK Export Finance, an organisation that aims to ensure that no viable UK export fails for lack of finance or insurance, is set to double in capacity.
The government is stopping what it called “inappropriate use” of the VAT flat rate scheme put in place to help small companies. The VAT flat rate scheme is an alternative way for small businesses to work out how much VAT to pay to HMRC each quarter.
Temp recruitment agencies have recently been accused of exploiting VAT rules that were originally designed to benefit very small businesses.
The government used the Autumn Statement 2016 to introduce a new 16.5 per cent rate from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. This, they hope, will maintain the accounting simplification for the small businesses that use the scheme as intended.
The government will be banning letting fees for private tenants “as soon as possible” after they have risen considerably despite attempts at regulation attempts. This could hit private buy-to-let investors who may find that they have to pick up this cost.
The chancellor announced in his Autumn Statement 2016 speech that the doubling of rural business rate relief – completely removing the burden of business rates – would bring a “well-needed” tax break to small businesses that are the “lifeblood of their communities”.
Increasing rural business rate relief to 100 per cent is expected to save qualifying businesses up to £2,900 every year in business rate payments.
If you’ve got any queries regarding the planned changes, please contact us.
Following the recent vote to leave the EU there has been a wave of property funds being suspended from multiple providers. Nearly £18 billion of assets have been frozen within the funds that have temporarily seized trading. The decisions to suspend property funds have been made by each provider to protect shareholder’s interests by avoiding having to make heavily discounted sales. Read more
We voted to leave the EU by a majority and the markets are reacting with some volatility. Sterling and the FTSE are down and global markets are also reacting.
History and experience has taught us that at times of severe volatility you need to remain invested in the markets, now is not the time to switch out of your investments as you will probably only crystallise losses. Read more